Canfor Pulp Products Inc. (CFX) Earnings Call Transcript & Summary

Good morning, and welcome to Canfor Pulp's 2021 Annual General Meeting. A recording of the call will be available on Canfor's website. Also, the company would like to point out that this call will include forward-looking statements, so please refer to the press release for the associated risks of such statements. I will now turn the call over to Mr. Conrad Pinette, Chairman of the Board. Please go ahead.

Good morning. It's now 11:30 a.m., and I would ask the meeting to please come to order. My name is Conrad Pinette, I am a Director and Chairman of the Board of Canfor Pulp Products, Inc., and will be acting as Chairman for this meeting. It's a great pleasure for me to extend a warm welcome to all of you today for the Annual General Meeting of Canfor Pulp Products, Inc. We thank you for all your cooperation at this difficult time for all of us and the communities in which we operate. Out of an abundance of caution and to proactively deal with potential issues arising from the unprecedented public health impact of COVID-19, we are hosting this meeting through this virtual platform, accessible to all our shareholders who have followed the procedures described in the management information circular for the meeting to participate, submit questions in both regardless of physical location. Please ensure you remain connected to the Internet during the course of this meeting. If you need technical assistance, please see the section entitled technical assistance in the management information circular respecting this meeting. This meeting has been convened as an annual general meeting of shareholders, this has been called for the principal purposes of receiving the consolidated financial statements for the year ended December 31, 2020, together with the auditor's report and the report of the directors to the shareholders. Fixing the number of directors of the company as 6, electing directors for the coming year and appointing the auditors for the coming year. At this point, I'd like to introduce Don Kayne, CEO of Canfor Pulp , Don; and David Calabrigo, the corporate sector of Canfor Pulp; David. There will be an opportunity for questions you may have to be addressed after the formal portion of the meeting has been concluded, and after you've heard from Don and me. I've asked Mr. Calabrigo to act as the secretary of this meeting. I'd now like to introduce to you the other directors of Canfor Pulp, John Baird; Stan Bracken-Horrocks; Dieter Jentsch; Don Kayne; William Stinson. They have all worked diligently and effectively with the management team at Canfor Pulp, and we appreciate their wise counsel. With the consent of the meeting, I hereby appoint AST Trust Company (Canada) to act as a scrutineer for the meeting. I would now like to call on Mr. Calabrigo to deal with the notice of this meeting.

Mr. Chairman, the notice calling the meeting was mailed to all shareholders of Canfor Pulp entitled to receive such notice. AST Trust Company of Canada has provided us with a certificate as to the mailing and a copy of the certificate will be kept with the records of the meeting.

Thank you. Mr. Secretary, would you please summarize the preliminary scrutineer's report.

We are pleased to report that there are 43 shareholders, holding 57,419,353 shares represented in attendance online or by proxy at this virtual meeting, representing 88.02% of the total and issued outstanding shares of Canfor Pulp .

As Chairman, I adopt the preliminary scrutineer's report and declare the attendance of this meeting to be as they have set forth. I direct then, when delivered, the financial scrutineer's report be kept with the records of this meeting. In accordance with the preliminary scrutineer's report, I declare a quorum present and the meeting to be duly constituted for the transaction of business. Based on the preliminary scrutineer's report, a sufficient number of proxies have been deposited with AST, voting in favor of all resolutions in the circular in order to pass each item of business in this meeting. I propose that we deal first with all the formal business requirements of the meeting. After the formal portion of the meeting is concluded, Don Kayne, the company's Chief Executive Officer, will say a few words, and there will be an opportunity for questions from registered shareholders and proxy holders, which can be submitted online. As this meeting is being held virtually, I would like to remind you that voting on all matters described in the management information circular for the meeting will be conducted by electronic ballot. To allow sufficient time for voting, the polls for all matters being voted on will be opened following these introductory remarks and closed at the end of the formal portion of the meeting. Only registered shareholders and duly appointed proxy holders, who have properly logged into the meeting, will be able to vote at the meeting. I'll also remind you that if you are a registered shareholder and you have already voted by proxy, you do not need to vote again unless you want to change your vote. If you plan to vote at the meeting, you may choose to vote on each resolution immediately or wait to cast your vote until last of the motion item is proposed. Once all items of business before the virtual meeting of input forward, I will give registered shareholders and proxy holders, one final opportunity to enter their vote on open polls if they haven't already done so, and then decare voting closed on all resolutions. In order to expedite the proceedings today, I will be proposing and seconding all motions and for any motions not included in the circular. The motions will be turned based on preliminary scrutineer's report and reliance on the discretionary authority granted in the proxies deposited for this meeting or on a poll at my discretion. I now declare the polls open on all resolutions included in the management information circular for the meeting. The first item of business to place for the meeting is the consolidated financial statements of Canfor Pulp for the year ended December 31, 2020, together with the auditor's report and the report of the directors to the shareholders. These statements and reports are contained in Canfor Canfor Pulp's annual report and are available on SEDAR or from the Canfor Pulp upon request. I'll regard the statements and reports as received by the meeting. The next item of business is to fix the directors at 6, the number of directors at 6. I propose that the number of directors be fixed at 6. I direct that a poll will be conducted on the motion and as the scrutineer report results. If you haven't already cast your vote online or by proxy, please cast your vote now. [Voting]

The next item of business is the election of directors of Canfor Pulp . I propose that the following individuals be nominated to act as directors of the company to hold office until the next Annual General meeting. John R. Baird, Stan Bracken-Horrocks, Dieter Jentsch, Don Kayne, Conrad Pinette and William Stinson. These persons are management's nominees for elections, as was stated in the information circular mailed to the shareholders of Canfor Pulp. There being no further nominations, I declare nominations closed. I direct that a poll be conducted on the motion and that the scrutineer report results. If you haven't already casted vote online or by proxy, please cast your vote. [Voting]

The next item of business is the appointment of auditors, and it is the Board's recommendation that KPMG LLP, chartered accountants, be appointed auditors of Canfor Pulp. I propose that KPMG LLP, chartered accountants, be appointed auditors of the company. I direct that a poll be conducted on the motion and that the scrutineer's report results. If you haven't already cast your vote online or by proxy, please cast your vote now. [Voting]

That concludes the matters to be voted on. For those registered shareholders and proxy holders, who have not voted on all of the resolutions for which the polls remain open, please do still now as I will shortly close all such polls. I'll give you a little bit of time here. [Voting]

The polls on all such resolutions are now closed. I direct the scrutineer to provide a report on the results of the polls. Based on the scrutineer's initial meeting report, I declare that the number of directors of the company has been set at 6, as only the required number of persons have been nominated to be elected as directors of the company, I declare that those persons nominated have been duly elected by acclimation as the Directors of the company to hold office until the next Annual General Meeting. And KPMG LLP, chartered accountants, have been appointed as the auditors of the company. After the meeting and upon receipt of the scrutineer's final meeting report on the polls conducted during this meeting, I direct this recording secretary of this meeting to attach the scrutineer's final meeting report to the minutes of the meeting. All of the business for which this meeting was called has been completed. Following termination of this formal part of the meeting, Don Kayne, the company's Chief Executive Officer, will say a few words and registered shareholders and proxy holders, who wish to ask questions or make comments, be subsequently invited to do so. I propose that the formal portion of this meeting be terminated. Based on the preliminary scrutineer's report, I appeared the motion carried and the formal part of this meeting is now terminated. I'm now pleased to invite Don Kayne, CEO of Canfor Pulp, to address the meeting. After Don's remarks, there will be a question period for any registered shareholder or duly appointed proxy holder to ask questions using the messaging icon at the top of the virtual interface. Over to you, Don.

All right. Thank you, Conrad. Good morning, everyone, and welcome, and thank you for joining us at Canfor Pulp's Annual General Meeting. I'd like to start my remarks by acknowledging that today's meeting is being hosted virtually from the unseated territory of the Coast Salish peoples, including the territories of Musqueam, Squamish and Tsleil-Waututh Nations. Given the ongoing COVID-19 pandemic, I want to thank you for your attending today's live audio webcast in an effort to protect everyone's health. I'd like to start by acknowledging our employees at all levels of the organization. I'm extremely proud of the hard work, of the resilience and of the dedication of all of Canfor Pulp's employees throughout 2020. It was a year that demonstrated that Canfor Pulp  employees, not only persevere through top times, but they also excel. Protecting our people, operations and all our operating communities has always been our key priority. COVID-19 and the economic crisis dramatically altered almost every aspect of how we live and how we work. We moved early and we moved quickly to ensure we had robust safety measures for all of our employees and all of our contractors across the company. On behalf of the management team and our Board of Directors, I want to express our sincere thanks to all our employees for their resourcefulness, while we continue to navigate through these uncertain and challenging times. Turning to our 2020 financial results. It was a challenging year for Canfor pulp. COVID-19-related disruptions and capital-related downtimes impacted the company's financial results. Canfor Pulp  recorded an operating loss of $56 million for 2020 and a net loss of $0.34 per share, compared to an operating loss of $31 million and a net loss of $0.47 per share for the previous year. Results reflect the decline in market prices, increased fiber and manufacturing costs and decreased energy revenues, combined with the impacts of pandemic-induced downtime across all facilities and an extended fall maintenance outage at the Northwood Pulp Mill. There was significant volatility in global pulp markets for most of 2020, the year started out with a carryover of 2019 market weakness, depressed prices and elevated inventory levels. The onset of the pandemic brought an acceleration to the structural decline of printing and writing papers due to significant further digitization as well as reduced residual fiber supply and increased fiber costs. Prices for China, the world's largest consumer of softwood pulp, remained at low levels throughout 2020, although we began to see some increases in Q4. On a positive note, pulp demand for critically needed personal protective equipment, such as medical-grade masks and hospital gowns, wet wipes for sanitizing, tissue and hygiene products as well as an increase in food-grade craft paper products, helped to partially offset market weakness. We also saw new trends begin to emerge from changing consumer habits. Overall, the global pulp inventory remained elevated for much of the year. Canfor Pulp's 2020 results were also notably impacted by significant operational downtime. These curtailments were largely due to a shortage of economically viable fiber in the region, caused by pandemic-induced sawmill downtime, particularly in April and May. Northwood pulp was curtailed for 3 weeks in the second quarter of 2020, followed by 4-week curtailments in the third quarter at Prince George Pulp & Paper and Intercontinental Pulp. These production curtailments were followed by regularly scheduled maintenance downtime at our pulp mills. In the fourth quarter, we also made the decision to extend our fall maintenance outage at Northwood to enable the replacement of the lower furnace on its #5 recovery boiler. Overall, capital spending was decreased in 2020, as we deferred planned projects at the onset of the pandemic due to market uncertainty. Completion of a new $42 million water treatment plant in Prince George, servicing the company's Prince George and Intercon Pulp Mill was an exception. This project reduces Canfor Pulp's water, chemical and energy use while helping to deliver consistently high-quality pulp to our customers. Northwood's recovery boiler #5 lower furnace was replaced at a cost of $27 million. Together with the upper furnace upgrades also completed in 2020, this project materially extends the useful life of this recovery boiler and allowed us to avoid the significant cost of a new boiler. Notwithstanding the direct and indirect impacts and uncertainties brought on by the pandemic, the company maintained a strong balance sheet and liquidity position throughout the year. As mentioned, to reserve a solid financial position, the company undertook early and prudent cost conservation initiatives, a disciplined approach to cash management and materially reduced our capital spending. The Board of Directors also decided to suspend the dividend in 2020, an action which will continue to be reviewed quarterly. Despite many challenges, Canfor Pulp ended the year with a strong balance sheet. Turning now to our Q1 2021 results. Canfor Pulp had an operating income of $5 million, up $33 million from the operating loss of $28 million in Q4 2020 and compared to operating income of $6 million in Q1 2020. Our 2021 Q1 results reflected improving global pulp market conditions, combined with a 25% increase in pulp production over the last quarter. Global softwood kraft pulp market conditions have strengthened significantly since the start of 2021 in response to improved market fundamentals, particularly from China, where prices have increased sharply in Q1. The pricing environment and demand is projected to remain favorable at least through the first half of 2021. With significant capital projects behind us and supply and demand in better balance, we are well positioned to capitalize on the upward momentum in pulp prices and improving demand going forward. Canfor Pulp focused on operational excellence, including increasing operational reliability and closing -- closely managing manufacturing and fiber costs. We are also looking at organic growth and pursuing new opportunities in specialty pump segments and the growing bioeconomy. Part of our company vision is to be a global leader in sustainability, with more countries banning the use of single-use plastics and increasing demand for renewable, low carbon materials, we have a great opportunity to lead in the development of sustainable products that can replace fossil fuel-based products. We also plan to make investments in facility improvements, expand green innovation and continue to support the RBS biotech project to convert wood biomass into high-value biofuels. We have always approached our business with a critical focus on sustainability, and we are excited to significantly increase our focus on environmental, social and governance standards, often referred to as ESG. Advancing our sustainability culture to the next level includes developing a more comprehensive sustainability strategy, aligned with best-in-class ESG standards. We are excited to significantly increase our focus on ESG reporting along with setting goals and implementing action plans with meaningful targets that will provide a pathway to achieving those goals. This work will be outlined in our sustainability strategy that will be announced later this year. Our people are our strength. The pandemic has demonstrated that we have an amazing group of employees, who are dedicated, resilient and committed. Through their efforts, not only have we persevered through tough times, but we've excelled. We continue to make significant progress on our commitment to build a diverse workforce that represents the communities, which we live and work by 2030. Our work includes undertaking employee inclusion and diversity training, expanding career development opportunities and launching our indigenous talent program to enhance services to indigenous candidates. My thanks on behalf of our executive team, to our Board of Directors and our shareholders for their ongoing support and confidence. I also want to thank again our employees, who have been exceptional. I am confident that we are well positioned to produce the innovative, sustainable and recyclable pulp and paper products that our customers want and the world needs. Thank you very much. So Conrad, with that, I will turn it back over to you.

Thank you, Don. This is an appropriate point in the meeting to respond to questions from shareholders. So are there any questions?

Mr. Chairman, there have not been any questions received at this time.

Well, thank you. Since there are no further -- no questions, and the meeting is now concluded, I want to thank you all for attending and for your cooperation through this very difficult virtual exposure that we've got. So thank you very much to everyone. Good day.

Thank you.

Thank you, everyone, for joining the call. This concludes the Canfor Pulp AGM.